David Dai Shu, ZTE’s director of global public affairs, comments, "It is noteworthy that, after a year-long investigation, the Committee rests its conclusions on a finding that ZTE may not be ‘free of state influence.’ This finding would apply to any company operating in China. The Committee has not challenged ZTE’s fitness to serve the US market based on any pattern of unethical or illegal behavior."

ZTE describes itself as "China’s most transparent, independent, globally focused, publicly traded telecom company", arguing it "set an unprecedented standard for cooperation by any Chinese company with a US congressional inquiry."

Mr. Dai Shu adds, "ZTE recognizes and fully respects the Committee’s obligation to protect US national security. ZTE believes the Committee focused its examination too narrowly on vendor locations not on equipment security. The Committee omitted the Western vendors and their Chinese manufacturing partners, which provide most of the US equipment now in use. The Committee also overlooked the opportunity to advance universal application of the Trusted Delivery Model which protects critical telecom networks on a vendor-neutral basis."

ZTE points out that the iPhone and other "U.S." devices are also made in China, and, in theory, equally at risk. It says if its products should be banned, so should Apple, et al.'s.

He argues, "Particularly given the severity of the Committee’s recommendations, ZTE recommends that the Committee’s investigation be extended to include every company making equipment in China, including the Western vendors. That is the only way to truly protect US equipment and US national security. National security experts agree that a Trusted Delivery Model will strengthen national security. In fact, major US carriers are increasingly requiring Trusted Delivery Model in their contracts."

ZTE does make a compelling argument. If the panel is arguing that large Chinese manufacturers can be coerced by the Chinese government to including hidden spying features in their products, why couldn't Foxconn -- Hon Hai Precision Industry Co Ltd.'s (TPE:2317) massive Chinese manufacturing subsidiary -- put the same kind of spying features inside iPhones or other U.S.-designed smartphones.

II. ZTE's Iran Secrets

However, ZTE may not be quite as transparent as it says. The company is in a difficult spot as it insists on doing business both with the U.S. and Iran. But U.S. trade laws tightly regulate what U.S. made products can be sent to nations viewed as hostile -- and that includes Iran.

The Iran controversy adds a tricky wrinkle to the ZTE debate. ZTE certainly does seem to have behaved less-than-honestly, according to reports, trying to obfuscate the fact that it was funneling (intentionally or unintentionally) small quantities of U.S. telecommunications components to Iran.

On the one hand, the Iran controversy and the question of Chinese spying are two separate issues. On the other hand, the Iran controversy could be indicative of general opportunism and dishonesty at ZTE, which could lead to the kind of spying Congress is concerned about. As former U.S. President George W. Bush says, "There's an old saying in Tennessee — I know it's in Texas, probably in Tennessee — that says, fool me once, shame on — shame on you. Fool me — you can't get fooled again."

The problem is not that we're building up our manufacturing capabilities while using the Chinese to supply the "cheap stuff"... quite the contrary, we're getting rid of any manufacturing capabilities, so by the time they don't need us to buy the crap from them, we won't have anything left to pick up the slack.

On the other, do we make all the cheaper components and refined materials that go in to our higher value-added manufacturing? No.

Then again, from a free market perspective there's no reason why we should, but there's also the geopolitical logic of why we'd give hostile states the keys to the shop, so to speak.

So I think I agree with you generally.. Freer trade, but intelligently so. We should also worry about sourcing military hardware from Europe; one wrong move the pacifists don't agree with, and we could find parts of our supply chain disappear.